R-CALF USA Overview of International Trade and the U.S. Cattle and - - PDF document

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R-CALF USA Overview of International Trade and the U.S. Cattle and Beef Industries Presented by Bill Bullard CEO, R-CALF USA July 30, 2009

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The Entire U.S. Livestock Industry Is in a Severe State of Crisis!

Loss of U.S. Livestock Operations 1980-2008

100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 900,000 1,000,000 1,100,000 1,200,000 1,300,000 Type of Livestock Operations Number of U.S. livestock Operations 1980 1,272,960 667,000 335,270 120,000 2008 757,000 64,760 67,000 82,330 >100 Hd 73,000 14,150 16,000 6,175 Beef Cattle Swine Diary Sheep 53% Loss 90% Loss 80% Loss 31% Loss Source: USDA-NASS R-CALF USA

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• I. Trade Policy Must Distinguish the

U.S. Cattle Industry From the U.S. Beef Industry

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First, What is the U.S. Cattle Industry?

• Single Largest Segment of American Agriculture until 2008.
• 12 states each generate over $1 billion annually in the sale of cattle and

calves, with these 12 states generating over $36 billion (2008).

• Only a portion of the $50 billion in annual cattle sales is sold to the U.S.

beef industry.

• In 2008, consisted of 956,500 cattle operations (including dairy) in all 50

states that raise and sell live cattle. 757,000 are beef cattle operations and fewer than 73,000 beef cattle operations have a herd size of over 100 head.

• Consists of seed stock producers who raise and sell breeding stock,

cow/calf producers who raise and sell calves, backgrounders and feeders who grow calves until they are ready for feeding, and feedlot operators who feed cattle until ready for slaughter.

• The cattle industry is highly sensitive to supply increases.
• Fundamentally wrong to view the beef industry as a representative of the

interests of the “cattle industry.”

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Cattle Industry Was Largest Sector

• f U.S. Agriculture Until 2008

R-CALF USA

TOP 12 U.S. AGRICULTURE COMMODITIES

0.0 10.0 20.0 30.0 40.0 50.0 60.0 C a t t l e a n d c a l v e s A l l d a i r y C

• r

n P

• u

l t r y a n d e g g s A l l

• t

h e r c r

• p

s O i l c r

• p

s B r

• i

l e r s S

• y

b e a n s V e g e t a b l e s F r u i t s a n d n u t s G r e e n h

• u

s e a n d n u r s e r y H

• g

s Commodity Billions of Dollars 2007 2008 Source: USDA-Economic Research Service, Farm Income

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12 States Each Generate Over $1 Billion in Cattle and Calf Sales

• Nebraska

$7.1

• Texas

$6.9

• Kansas

$6.2

• Colorado

$3.0

• Iowa

$2.9

• Oklahoma

$2.4

• California

$1.8

• S. Dakota

$1.7

• Missouri

$1.2

• Idaho

$1.2

• Minnesota

$1.1

• Montana

$1.0

• 2008 Total:

$36.5

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Beef Industry Purchases Only a Portion of Annual Cattle Marketings

Sources of Cattle Industry Income

10,000,000 20,000,000 30,000,000 40,000,000 50,000,000 60,000,000 2007 S ales of Cat t le and Calves

Marketings for Slaughter 35 million head $36.1 billion Income Other Marketings 1 9.2 Million Head $1 4.1 Billion Income

Source: USDA-NASS

R-CALF USA

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U.S. Cattle Markets Have Been Broken for Past Two Decades

Source: Dr. Robert Taylor, Auburn University R-CALF USA Black: Cattle Prices Red: Retail Beef Prices

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U.S. Cattle Industry is Shrinking: Industry Participants

Source: USDA-NASS R-CALF USA

956,500 757,000

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The Size of the U.S. Cattle Herd is Shrinking

Source: USDA-NASS

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Domestic Beef Production is Stagnant

Note: The volume of beef produced from imported cattle (No. of imported cattle x each year’s average carcass weight) is excluded from these data.

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Domestic Beef Production v. Total U.S. Beef Production Explained

• USDA currently includes all beef produced at U.S.-based packing

plants as domestic beef production.

• However, this is inaccurate because millions of imported cattle are

slaughtered in U.S. packing plants each year, including animals imported for immediate slaughter.

• R-CALF USA subtracted the annual production of beef derived from

imported cattle from USDA’s annual production estimates to arrive at a more accurate estimate of “domestic beef production,” i.e., beef produced from animals exclusively born, raised, and slaughtered in the USA. (R-CALF USA multiplied the number of annual cattle imports by the average annual carcass weight to determine the volume of beef produced annually from imported cattle, and then subtracted this amount from USDA’s annual production estimates.)

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Today’s U.S. Cattle Industry

956,500 Remaining Total Cattle Operations in 2008, including 757,000 Beef Cattle Operations 80,000 Farmer Feeders in 2008 (Reduced from 85,000 in 2007) Fed Approx. 10 % of All Fed Cattle in the U.S 2,170 Feedlots Fed Approx. 90 %

• f All Fed Cattle in the U.S. in 2008

4 Beef Packers Slaughter

• Approx. 88 % of All Fed

Cattle in the U.S.

Produced 36 Million Cattle (calves) in 2008

Slaughtered 34.4 Million Cattle in 2008, Including 1-2 Million Imports R-CALF USA

U.S. Cattle Operations have been Exiting the Industry at a Rate of 19,000 Per Year Since 1996

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• A. U.S. Cattle Industry is Highly

Sensitive to Changes in Imported Cattle Supplies

• The U.S. International Trade Commission (USITC) has confirmed that the

U.S. live cattle industry is highly sensitive to even slight changes in increased imports of live cattle.

• The staff at the ITC found that the farm level elasticity of demand for

slaughter-ready cattle is such that: “[E]ach 1 percent increase in fed cattle numbers would be expected to decrease fed cattle prices by 2 percent.”

U.S.-Australia Free Trade Agreement: Potential Economywide and Selected Sectoral Effects, United States International Trade Commission (Publication 3697; May 2004) at 44, fn 26, available at http://hotdocs.usitc.gov/docs/pubs/2104f/pub3697.pdf.

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Long-Run Price Depression Coincides with Increased Cattle Imports

RELATIONSHIP BETWEEN CATTLE IMPORTS AND FED CATTLE PRICES

500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 1 9 8 5 1 9 8 6 1 9 8 7 1 9 8 8 1 9 8 9 1 9 9 1 9 9 1 1 9 9 2 1 9 9 3 1 9 9 4 1 9 9 5 1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9 2 2 1 2 2 2 3 2 4 2 5 2 6 2 7 2 8 Number of Cattle Imports $40.00 $50.00 $60.00 $70.00 $80.00 $90.00 $100.00 Fed Cattle Prices (per cwt.) Canada-U.S. Free Trade Agreement Effective Date

• f NAFTA

Record Live Cattle Imports from Mexico BSE Detected in Canada Source: USDA-ERS R-CALF USA

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• B. The U.S. Beef Industry’s Focus Is

On Exports

What is the U.S. Beef Industry?

• The U.S. beef industry consists of beef packers and beef

processors that are classified under the 2007 North American Industry Classification System (NAICS) as Food Manufacturers.

• As manufacturers, the economic interests of the beef industry

are distinct from the economic interests of the U.S. cattle industry.

• The beef industry buys slaughter-ready cattle; the cattle

industry sells slaughter-ready cattle.

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The Beef Industry is Excessively Concentrated

• In 2001, Oklahoma State University Economist Clement Ward found that

the concentration levels in the U.S. meatpacking industry were already among the highest of any industry in the United States, “and well above levels generally considered to elicit non-competitive behavior and result in adverse economic performance.”[1] At that time, the four largest meatpackers controlled over 80 percent of U.S. steer and heifer slaughter.

• Notwithstanding the fact that this conclusion strongly suggests that no

additional concentration should have been allowed, in October 2008 the U.S. Department of Justice allowed the 3rd largest U.S. beef packer – Brazilian-owned JBS, to acquire the nation’s 5th largest beef packer – Smithfield Beef Group, which raised the four-firm concentration ratio to an unprecedented level of approximately 88 percent.

• [1] A Review of Causes for and Consequences of Economic Concentration in the U.S. Meatpacking

Industry, Clement E. Ward, Current Agriculture Food and Resource Issues, 2001, at 1.

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Current Trade Policies Reflect the Interests of the Beef Industry, Not the Cattle Industry

• No protections against import surges to reflect cattle industry’s extreme sensitivity to increases in cattle

imports.

• No quantity and price safeguards for both beef and live cattle.
• No acknowledgement that beef and cattle are like/kind products.
• No consideration for the perishable nature of both beef and cattle.
• No consideration for fact that beef is imported in two distinct forms: pre-slaughtered beef (live cattle) and

post-slaughtered beef (beef).

• Foreign countries are granted access to the U.S. market before the U.S. is allowed access to foreign

markets.

• Rules of Origin have not been reformed to require beef imports to be derived from cattle born raised and

slaughtered in the participating country, resulting in transhipments of cattle from non-participating countries into participating countries.

• Rather than require importing countries to meet U.S. health and safety standards, the U.S. has

systematically relaxed standards to facilitate more imports.

• Imported livestock are not required to be permanently marked with a mark of origin to aid in foreign

animal disease trace-backs after importation (U.S. Department of Treasury’s “J-List”).

• No action to correct currency manipulation by trading partners that have taken action to under-value their

currencies vis-à-vis the U.S. dollar to gain an unjust trading advantage.

• Cattle industry vulnerable to any country that decides to increase production to penetrate our U.S. market,

and vulnerable to any beef packer that decides to import into the U.S. more cattle and beef to drive down domestic prices.

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Increased Exports Do Not Always Lead to Higher Cattle Price

R-CALF USA

Relationship Between Export Volumes and Fed Cattle Prices

0.0 0.5 1.0 1.5 2.0 2.5 3.0 1 9 8 5 1 9 8 6 1 9 8 7 1 9 8 8 1 9 8 9 1 9 9 1 9 9 1 1 9 9 2 1 9 9 3 1 9 9 4 1 9 9 5 1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9 2 2 1 2 2 2 3 2 4 2 5 2 6 2 7 2 8 Exports: Billions of Pounds $40.00 $50.00 $60.00 $70.00 $80.00 $90.00 $100.00 Fed Cattle Prices (per cwt.) Imported Canadian Cow Detected with BSE Canadian-U.S. Free Trade Agreement Effective Date of NAFTA Nine Years of Depressed Prices Source: USDA-ERS

Source: USDA-ERS

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• II. The U.S. Cattle Industry Suffers

From a Substantial, Long-Run Trade Deficit

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Long Run Value Deficit in Cattle and Beef Trade Exacerbates Broken Market Problems

R-CALF USA

U.S. Trade in Cattle and Beef

• $4
• $3
• $2
• $1

$0 $1 $2 $3 $4 $5 $6 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 U.S.$ Billion Imports Exports Balance Source: Census Bureau Foreign Trade Statistics for HS 0102, 0201, and 0202

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Tremendous Volume Deficit in Cattle and Beef Trade Forces Domestic Cattle Prices Lower

Conversion of imported cattle to beef accomplished by multiplying the number of imported cattle by each year’s average slaughter carcass weight.

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Total Imports of Beef and Cattle Converted to Beef 1 2 3 4 5 6 Billions of Pounds Year Source: USDA-ERS Total Exports of Beef and Cattle Converted to Beef

U.S. Global Trade Deficit in Cattle and Beef

R-CALF USA

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NAFTA Trade Deficit Represents Over Half of U.S. Global Trade Deficit in Cattle & Beef

Conversion of imported cattle to beef accomplished by multiplying the number of imported cattle by each year’s average slaughter carcass weight.

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 1 2 3 4 5 6 Billions of Pounds

NAFTA Cattle & Beef Trade Balance

Imports of Beef and Cattle Converted to Beef Exports of Beef and Cattle Converted to Beef Source: USDA-ERS R-CALF USA

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Origins of Imported Beef When Only Imported Beef Product is Included

R-CALF USA

Origins of Imported Beef Without Including Beef from Imported Cattle

1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Carcass Weight, 1,000 pounds Other Mexico Uruguay Argentina Brazil New Zealand Canada Australia Australia Canada New Zealand Uruguay Source: USDA-ERS

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Canada is Largest Beef Source When Imported Cattle are Slaughtered and Mexico Rivals Australia for Second Place

R-CALF USA

Origins of Imported Beef & Cattle Converted To Beef

1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Carcass Weight, 1,000 pounds Other Mexico Uruguay Argentina Brazil New Zealand Canada Australia Australia Canada New Zealand Uruguay Source: USDA-ERS Mexico

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Changes in Trade Flows that Cause Small Impacts

• n Prices Have a Profound Effect on the Profitability

and Viability of U.S. Cattle Producers

• “[E]ven seemingly small impacts on a $/cwt.

basis may make substantial difference to livestock producers and rival meatpacking firms operating at the margin of remaining viable or being forced to exit an industry.” [1]

[1] A Review of Causes for and Consequences of Economic Concentration in the U.S. Meatpacking Industry, Clement E. Ward, Current Agriculture Food and Resource Issues, 2001, at 2.

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Domestic Beef Production Lags Behind Domestic Beef Consumption

Domestic Production Lags Behind Domestic Consumption 10 12 14 16 18 20 22 24 26 28 30 1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9 2 2 1 2 2 2 3 2 4 2 5 2 6 2 7 2 8 Billions of Pounds of Beef Total Beef Productin Beef Produced from Domestic Cattle Domestic Beef Consumption

Source: USDA ERS, FAS R-CALF USA

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Historic Under-Production of Domestic Beef in Recent Years

R-CALF USA Conversion of imported cattle to beef accomplished by multiplying the number of imported cattle by each year’s average slaughter carcass weight.

1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 Beef Produced from U.S. Cattle Imported beef and beef from imported cattle Beef Produced Exclusively from U.S. Cattle 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Billions Pounds Year

Domestic Consumption in Excess of Domestic Production

Widest spread in history

• f industry, 2004-2007

Imported Beef and Beef from Imported Cattle Total Domestic Beef Consumption Consumption Increases after 1993 Source: USDA FAS, USDA ERS

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Domestic Beef Production Losing Share of Total Available Beef Supply

Domestic Production Losing Share of Total Available Beef Supply 10 12 14 16 18 20 22 24 26 28 30 32 1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9 2 2 1 2 2 2 3 2 4 2 5 2 6 2 7 2 8 Billions of Pounds of Beef Total Beef Production Beef Produced from Domestic Cattle Total Available Beef Supply

Source: USDA ERS R-CALF USA

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Cattle and Beef Imports Capturing Growth in Domestic Beef Supply

R-CALF USA Conversion of imported cattle to beef accomplished by multiplying the number of imported cattle by each year’s average slaughter carcass weight.

1 9 8 5 1 9 8 7 1 9 8 9 1 9 9 1 1 9 9 3 1 9 9 5 1 9 9 7 1 9 9 9 2 1 2 3 2 5 2 7 Beef Produced from Domestic Cattle Total Domestic Production Beef Produced from Domestic Cattle 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 Billions Pounds

Origins of United States Beef Supply

Total Domestic Production Total Available Beef in U.S. Market 17 % of All Available Beef was Imported in 2007 10 % of All Available Beef was Imported in 1985 13 % of All Available Beef was Imported in 1996

Imported Beef Beef from Imported Cattle

Data Source: USDA-ERS

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R-CALF USA

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Why Cattle Industry is Highly Sensitive to Price Changes

• Longest biological cycle of any farmed animal – inelastic

supply.

• Finished cattle are highly perishable.
• Demand for cattle bounded on weekly basis – Packers set

weekly limits by choice and by capacity constraints.

• Transportation costs limit marketing options.
• Competition for raw products, e.g., cattle, is inherently less

intense than is competition for processed food products.

• Marginal transparency in cattle markets.
• Packers have superior marketing information, particularly

those with substantial captive supply arrangements, which include imported cattle.

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• III. Trade Policies of Past 15

Years Have Failed the U.S. Cattle Industry and Must be Fundamentally Reformed

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GOAL FOR FUTURE TRADE POLICY

• International Trade Policy Must Facilitate

the Restoration and Rebuilding of the Contracted U.S. Cattle Industry.

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Trade Strategy for Rebuilding the U.S. Cattle Industry

• Achieve an Equitable Balance Between the

Interests of the Cattle Industry and the Interests of the Beef Industry.

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Specific Trade Policy Reforms Needed

• 1. Specifically Assess Trade Impacts on the Cattle Industry:
• Cattle producers are the sector most likely to experience

income, output and employment losses due to ongoing liberalization of U.S. beef imports.

• The U.S. should employ a partial equilibrium model, explicitly

evaluate the likely impact of beef trade liberalization on upstream cattle producers, and take into account the market concentration and contracting practices in the meat packing industry, as well as the perishable nature of live cattle, in making its assessment.

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Specific Trade Policy Reforms Needed

2. Address Global Market Distortions that Disadvantage U.S. Cattle Producers:

• Tariffs in the rest of the world on beef average 85%; on

actual imports, those in the U.S. just 2.5% (26% on above quota imports).

• Massive subsidies by the EU and large subsidies by Brazil,

Australia and Canada vs. essentially none from the U.S.

• State trading enterprises in grains which distort competition

by making grains available to foreign cattle producers at prices not market driven.

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Specific Trade Policy Reforms Needed

• 3. As required in the Trade Act of 2002,

special rules must be included in all trade agreements to recognize the perishable nature of cattle and beef, be applicable to both cattle and beef, and be automatic in application.

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Specific Trade Policy Reforms Needed

4. Designate Cattle and Beef as Like/Kind Products Including:

• Recognize that beef is imported in two distinct

forms: pre-slaughtered beef (live cattle) and post-slaughtered beef (beef).

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Specific Trade Policy Reforms Needed

5. Prevent Transhipment of Foreign Cattle in the Production of Beef in Exporting Countries:

• Rules of Origin must be modified to require

that beef be derived from animals born, raised, and slaughtered in the country of export.

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Specific Trade Policy Reforms Needed

6. Cease Practice of Ratcheting Down U.S. Health and Safety Import Standards to Accommodate More Imports:

• Importing countries must be required to meet U.S.

health and safety standards, which standards must now be strengthened following recent actions that have effectively weakened restrictions against the importation of livestock diseases and pests.

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U.S. Has Weakest Import Standards Against Introduction of Mad Cow Disease (BSE)

R-CALF USA

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Specific Trade Policy Reforms Needed

7. Require All Imported livestock to be Permanently Marked with a Mark of Origin to Aid in Foreign Animal Disease Trace-backs After Importation (Remove Livestock from the U.S. Department of Treasury’s “J-List”).

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Specific Trade Policy Reforms Needed

• 8. Correct Currency Manipulation by

Trading Partners that have Taken Action to Under-Value their Currencies Vis-à-vis the U.S. Dollar to Gain an Unjust Trading

• Advantage. We Urge Support of the

Stabenow/Bunning Bill (S. 1027) to Address this Ongoing Problem.

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Specific Trade Policy Reforms Needed

9. Cease Practice of Allowing Foreign Countries Access to the U.S. Market Before the U.S. is Allowed Access to Foreign Markets.

We need a national trade and economic strategy. Unilateral free trade, where we drop barriers, and other countries do not reciprocate, has failed. A national trade and economic strategy has the support of a broad swath of U.S. economic

• sectors. See attached "Fixing America's Economy" document with signatories.

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Specific Trade Policy Reforms Needed

10. Amend NAFTA to Provide U.S. Cattle Producers Relief from Price- Depressing Live Cattle Imports.

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